Will Earnings Season Live Up To The Hype?

The earnings season for the second quarter is upon us, starting with Alcoa which reports next Monday. Will the earnings be as hot as the summer months? Well, they'd better be. Major indexes have rallied despite the end of the Fed's bond buying program (which supported stocks for a while), and the S&P 500 index recently reached a 2-month high. Several analysts have pointed out that stock markets appear overbought. Judging by the lofty valuations currently on display, it's clear that investors expect companies' earnings to significantly exceed expectations. A word of warning: These bullish conditions may prompt some investors to take profits and sell, especially if earnings results don't live up to the hype. So, how can you position your portfolio for possible disappointment during the upcoming earnings season? To help you get ideas, we crunched some numbers on the companies reporting earnings next week, and identified those names that have seen the biggest increase in shares shorted over the last month. Short sellers bet on stock prices to fall. To do so, they have to borrow shares from existing shareholders. They then go and sell these shares on the open market, receiving the sale proceeds. If the share price drops, the short seller can buy back the stock at a lower price, and give it back to the original lender. In this scenario, the short seller bags the difference, and makes a profit. Hence, when there's an increased activity in short-selling, market participants expect those market prices to decline. Short sellers are usually very sophisticated traders, and they usually dedicate a lot of time to the success of their strategies. If they're shorting a stock, you better pay close attention. Here is a list of companies reporting earnings next week, with a significant increase in shares shorted over the last month. Short sellers think these companies are set to fall after earnings season--do you agree? List sorted by change in shares shorted as a percentage of float.

1. Texas Industries Inc.( TXI): Cement Industry. Shares shorted have increased from 4.50M to 4.72M over the last month, a change that is equivalent to 1.01% of the company's float of 21.72M shares. The company is set to report earnings on 07/14.

2. ADTRAN Inc.( ADTN): Communication Equipment Industry. Shares shorted have increased from 4.3 3M to 4.81M over the last month, a change that is equivalent to 0.74% of the company's float of 64.49M shares. The company is set to report earnings on 07/12.

3. Cubist Pharmaceuticals Inc.( CBST): Drug Manufacturer. Shares shorted have increased from 8.16M to 8.50M over the last month, a change that is equivalent to 0.6% of the company's float of 56.58M shares. The company is set to report earnings on 07/14.

4. iGATE Corporation( IGTE): Information Technology Services Industry. Shares shorted have increased from 1.99M to 2.17M over the last month, a change that is equivalent to 0.6% of the company's float of 30.08M shares. The company is set to report earnings on 07/13.

5. JB Hunt Transport Services Inc.( JBHT): Trucking Industry. Shares shorted have increased from 2.34M to 2.86M over the last month, a change that is equivalent to 0.56% of the company's float of 92.82M shares. The company is set to report earnings on 07/14.

6. Republic Bancorp Inc.( RBCAA): Regional Bank. Shares shorted have increased from 470.03K to 521.89K over the last month, a change that is equivalent to 0.51% of the company's float of 10.18M shares. The company is set to report earnings on 07/11.

7. Wolverine World Wide Inc.( WWW): Apparel Footwear & Accessories Industry. Shares shorted have increased from 1.80M to 2.03M over the last month, a change that is equivalent to 0.48% of the company's float of 48.13M shares. The company is set to report earnings on 07/12.

8. Fairchild Semiconductor International Inc.( FCS): Semiconductor Industry. Shares shorted have increased from 4.53M to 5.10M over the last month, a change that is equivalent to 0.45% of the company's float of 126.73M shares. The company is set to report earnings on 07/14.

9. Bank of the Ozarks, Inc.( OZRK): Regional Bank. Shares shorted have increased from 2.48M to 2.53M over the last month, a change that is equivalent to 0.36% of the company's float of 14.06M shares. The company is set to report earnings on 07/12.

10. Universal Forest Products Inc.( UFPI): Lumber, Wood Production Industry. Shares shorted have increased from 1.40M to 1.46M over the last month, a change that is equivalent to 0.34% of the company's float of 17.47M shares. The company is set to report earnings on 07/13.